Undervalued Coal Leases Seen as Costing Taxpayers

By JOHN M. BRODER

June 11, 2013

WASHINGTON — The Interior Department is failing to collect tens of millions of dollars in lease payments for coal mining on federal lands, according to an agency inspector general’s report released Tuesday.

The study found that the Bureau of Land Management was improperly applying its own rules for assessing the fair market value of minerals beneath federally owned lands, shortchanging the government and providing a bonanza for a handful of large coal companies operating in the Powder River Basin of the Mountain West.

The report, the product of one of a series of investigations under way of federal coal leasing and royalty collection, indicated that significant problems remained in a program that has periodically been hit by scandal and that has not undergone a serious overhaul in decades.

The study of coal leasing found that, despite rules adopted in the 1980s devised to ensure competition, more than 80 percent of sales in the past 20 years had received only one bid. The report said the process for computing the value of the leases was faulty, costing the government millions. At the current rate of coal leasing, the inspector general found, every penny-a-ton undervaluation costs taxpayers $3 million.

Further, the Bureau of Land Management allows coal companies to expand their lease holdings by as much as 960 acres with no competitive bidding and little oversight, the report said. The bureau has approved 45 such lease modifications since 2000 without adequate documentation, the report stated, potentially costing taxpayers $60 million.

An independent study last year concluded that the Interior Department’s failure to secure fair market value for coal mined on public lands had deprived taxpayers of almost $30 billion over the previous 30 years. The Interior Department disputes that figure.

The Interior Department is conducting a separate investigation into whether the government is receiving fair value for coal bound for export to Asia, which sells at prices four to seven times higher than what domestic users pay.

Coal loaded on rail cars in the Powder River Basin in Wyoming. An inspector general’s report said the Bureau of Land Management was undervaluing minerals in federally owned land.

National Mining Association, via Reuters

Senator Ron Wyden, Democrat of Oregon, who leads the Energy and Natural Resources Committee, said the report issued Tuesday raised new questions about whether the Bureau of Land Management was serving the interests of taxpayers or the coal industry.

“Today’s report highlights the issue of whether the B.L.M. properly appraises the value of federal coal when it sells leases, and the inspector general clearly thinks the agency came up short on this point,” Mr. Wyden said in a statement. “Because these issues are so important to taxpayers and Western states, Congress ought to dust off the books and take another look to ensure taxpayers are collecting every dime they’re owed.”

The inspector general noted that the government collected $2.4 billion in coal royalties and lease payments in 2012, a figure that is expected to rise in coming years as demand rises for coal in Asia and elsewhere around the world.

The report made 13 recommendations for strengthening the program to make sure taxpayers are not getting shortchanged.

The Bureau of Land Management concurred with most of the findings and said it was carrying out most of the recommendations in the report. Neil Kornze, the bureau’s deputy director, said the agency was rewriting its procedures and creating a task force to review its process of evaluating coal lands.

Mr. Kornze disputed the report’s conclusion that the government lost as much as $60 million by undervaluing lease modifications, saying the figure was most likely considerably lower.

“The report highlights some of the same concerns that the B.L.M. has been working to address,” Mr. Kornze said in a letter to the inspector general. “The B.L.M.’s ongoing efforts, combined with addressing the recommendations in the draft report, will help to improve the agency’s management of the coal program.”

Luke Popovich, a spokesman for the National Mining Association, which represents the coal companies operating in the Powder River Basin, said the losses asserted in the report “amount to a rounding error compared to the total sums they document that are paid to taxpayers.”

He added that the agency officials responsible for assessing market values for coal must deal with complex market and financial variables, and that their valuations could as easily be high as low.